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Goldman slashes oil price forecasts as new supply seen plentiful

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Global benchmark Brent crude will average $62.50 a barrel this year, down from a previous estimate of $70.

Monday 07, January 2019

(Bloomberg) --Goldman Sachs cut its oil price forecasts for 2019, citing a re-emerging surplus of oil and resilient US shale production.

US marker West Texas Intermediate will average $55.50 a barrel, down from a prior forecast of $64.50. With current prices below those levels, Goldman sees them as undervalued at the moment.

A surge in OPEC production in late 2018 means the market started this year better supplied than the last, and pipeline constraints in the US Permian Basin will clear up faster than expected, according to Goldman. Big projects in the works for years in Brazil and Canada will also ramp up output in 2019. Combined, those increases mean fewer high-cost marginal barrels will be needed to meet global demand growth this year, Courvalin said.

“We expect that the oil market will balance at a lower marginal cost in 2019 given higher inventory levels to start the year, the persistent beat in 2018 shale production growth amidst little observed cost inflation, weaker than previously expected demand growth expectations (even at our above consensus forecasts) and increased low-cost production capacity,” Courvalin wrote.

Crude prices ended 2018 after a roller-coaster ride, rising to a four-year high of over $86 a barrel in October and then plunging as much as 42 per cent by the close of the year. That sell-off appears to have overshot, Courvalin said, as it prices in global economic growth plunging to about 2.5 per cent in 2019, well below economists’ forecasts of about a 3.5 per cent increase.

“The oil market has priced in an excessively pessimistic growth outlook,” Courvalin wrote. “This sets the stage for prices to recover as long as global growth does not slowdown below 2.5 per cent.”

 

TAGS : Goldman Sachs, Oil, OPEC

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